What does overdraft cost?

Almost all bank accounts offer the option to overdraw the current account. This is a way for consumers to prevent certain bills from not being paid because there is temporarily not enough money in the checking account. Consumers often do not realize that it is a form of borrowing and that it is expensive once you use it. It happens to everyone sometimes, during the month the balance of the checking account is insufficient to cover the withdrawals and payments. Most bank accounts have the option to overdraw in these cases and temporarily solve the problem. A small overdraft at the end of the month is not such a big problem, but it should not become a problem after that. As soon as the income has been credited again, there is less money left for the month in question because the deficit must first be supplemented. People who are regularly overdrawn will have to take measures to prevent them from ultimately being unable to get out.

What does overdraft cost?

The interest that banks may charge is subject to maximum amounts. This maximum depends on the fact that the statutory interest rate, which is currently (October 2012) 3 percent, but was 6 percent until July 2009. The statutory interest rate plus 12 percent is the maximum interest rate that banks must stay below. In total, a bank can charge you 15 percent interest. Most bank accounts have an overdraft of at least 1,000, which would mean an annual interest charge of 150. A calculation shows that an overdraft of half a month (15 days) of 500 will cost you: 15 percent / 12 = 1.25 percent per month. Per month it costs you 1.25 percent x 500 = 6.25. So for half a month it will cost you 3.12. However, most banks do not charge the maximum permitted rate, but are a few percent below it.

The problem with being overdrawn is not the interest to be paid

As the previous calculation shows, the loan interest to be paid is high, but not insurmountable if you express it in euros. The danger is not in the interest you have to pay on short-term debts, but it can be the beginning of a downward spiral. Most debts were once caused by an innocent overdraft. Families with the maximum overdraft have to pay the high interest charges, but the biggest problem is that a large part of the paid income for an entire month disappears to clear the overdraft again. As a result, debts will constantly arise again in the coming months because the remaining income is not enough to make ends meet.

Solve with a revolving credit?

A loan with a lower interest rate seems to be the solution to solve the problems. This is indeed the solution, but there is also a danger. A loan in the form of a revolving credit generally has a high credit limit. A revolving credit therefore offers the opportunity to get out of the red, but also offers opportunities to withdraw extra money very easily. The pressure to make ends meet on the available money is decreasing. In practice, it appears that the extra space will result in an overdraft sooner and that an amount will therefore have to be withdrawn from the revolving credit. It proves once again that it is important to create a reserve in the form of a savings balance.